When Is It Time For a Second Opinion?

I received a call from a home owner last year. They wanted to order an appraisal of their home. The bank had hired an appraiser to perform a full appraisal. The home owner felt that the value from the first appraiser was not realistic for that neighborhood. Honestly, I thought to myself, “Of course you feel that way. The value came in lower than you expected.”

I explained to them that often, my findings agree with the original appraiser. They said that they just wanted to make sure because they knew the neighborhood and just felt it was off. They did also mention that the appraiser was exceptionally rude while making his inspection. Since there are always two sides to a story, I took this information with a grain of salt.

After completing my appraisal of their home, my research revealed that, at least in my opinion, the home owner was correct in feeling that the original appraiser’s opinion of market value was not supportable.

Now in all fairness, it’s easy for me to say that my value estimate is more accurate than that of the other appraiser. They are not here to defend their conclusions. I sincerely hope that they have some rational for why they did what they did. It goes without saying that my view is clearly a matter of opinion. After all, that’s what we are hired to provide. Our opinion of value. The more supportable the analysis, the more accurate the appraisal, typically. The accuracy of the appraiser’s opinion is directly associated with the supportability of the report based upon available reliable and verifiable data.

Here is why my value estimate was nearly 100k higher than the other appraiser’s value estimate. For one thing, the sales they used were all around 1,000 square feet smaller than the subject property, in terms of gross living area. The subject was about around 5,500 sq .ft. of GLA (Gross Living Area). The sales they used were also all in a completely different cities, with that most in the market would consider to be inferior locations. I have to ask myself why would the appraiser use these sales when there werecomparable sales in the neighborhood that were much more comparable in terms of GLA, condition, quality and market appeal, that had sold within a year of the effective date of the original report? It almost seemed like they came in lower on purpose. But that wouldn’t make sense. Additionally, they used $35 per sq ft for their GLA adjustments. Keep in mind that the comparable sales were selling around $700-$900k. My GLA (and other adjustments) were considerably higher. The appraiser never explained how they derived their adjustments nor any thoughts as to why the used the sales that the did. Hmmmmm.

The home was 10 years old. The appraiser completed the Coat Approach. However their estimated site value was very low and not supported. I found comparable vacant land sales within the subject’s own development, which also had new homes being constructed. It wasn’t difficult to find comparable vacant land sales. When comparable land sales were used, the value based upon replacement costs was very close to the market value I estimated.

What really annoyed me is that the appraiser had an SRA designation. I say that not to disparage the Appraisal Institute. On the contrary! I know the work involved in obtaining an SRA designation. My point is, with that type of education, they should have known better!

WHEN TO GET A SECOND OPINION

So when should you get a second opinion? That’s a loaded question! If the appraisal is for the bank and you feel that the results of the appraisal are not supportable, you will have to provide the bank with some solid evidence to support your claim. In the case I mentioned, my client hired me, not so much to disprove the first appraisal, but to simply get a second opinion. If you find yourself in this situation, call your bank and ask them if they would consider accepting a second appraisal from another qualified professional.

If you have truly comparable sales that the appraiser didn’t use, you can submit those to the bank, who can ask the appraiser to consider them. A word of warning, many times, when I am presented with what some consider to be comparable sales, I find that they are often in different neighborhoods, whereas the sales I used were in the subject neighborhood. Also, many times, when I apply market-derived adjustments to the additional sales provided, they usually adjust to right around what I appraised a property for. So make sure they are really comparable sales.

6 Warning Signs That An Appraisal Might Not Be Supportable:

1. Very little verbiage explaining how the appraiser determined the value.

2. Lots of verbiage and addenda that don’t really tell you anything.

3. An appraiser who is unwilling to explain what they did and how they did it to their client.

4. An appraiser who is overly defensive. (An appraiser, or any person for that matter, is going to be defensive if they feel like their work is being attacked. So when communicating with the appraiser, I recommend doing so in a respectful manner.) However, sometimes, if an appraiser does not know what they are doing, they may be defensive because they are trying to cover for their inability or frustration in not being able to adequately explain what they did, why they did it and how they did it. It should also be noted that an appraiser can only discuss the appraisal results with their client or those that the client has given the appraiser to discuss the appraisal with.

5. All or most of the sales are located in a different neighborhood or city. Especially in urban and suburban settings. It may be that there are simply no comparable sales in that neighborhood. However, in areas with higher densities, usually this is not the case unless the property is very unique.

6. When adjustments are made, the appraisal doesn’t explain how the adjustments were derived. Or when asked, the appraiser cannot adequately explain how adjustments were derived.

If you hired the appraiser for a private appraisal, read through the report. Don’t just look at the number. If you don’t understand something, ask the appraiser to explain. A professional appraiser should be happy to explain any questions you may have, if you’re their client.

After performing my appraisal and comparing it to the previous one mentioned earlier, I recommended to my client that they send a copy of both the original appraisal and my appraisal to the Appraisal Institute for a peer review. The home owner surprised me with their response. They said that “Everyone is entitled to a bad day.”I really respected the home owner for saying that! After all, as appraiser’s sometimes we do make mistakes. Sometimes we do get it wrong. I would be concerned about any appraiser that doesn’t acknowledge that. I know I’ve certainly made mistakes. Who knows what was going on with the first appraisal.

A word of caution. Don’t be quick to judge the report as being bad simply based on a glance. Even if some of the red flags are seen initially. While I don’t do as much review work these days, I have performed many reviews over the years. Sometimes, the ugliest reports end up being very good. It might be that the home was just difficult to appraiser for one reason or another. On the other hand, some reports look very clean from a glance, sometimes, but end up being very bad once the research and analysis is madeby the reviewer. The only way to know if an appraisal is truly good or not is by completing the proper research and analysis to find out if what is being reported and analyzed is supportable.

Whatever the case, if your Spidey senses tell you something is wrong, it might be worth getting a second opinion from another qualified appraiser. You might find that the first appraisal was excellent. Hopefully that is the case. Either way, it could be well worth the money to get a second opinion.

If you liked the Lost in Space Reference above, check out the trailer to the re-make of this mini-series. I enjoyed the re-make. (Especially after the first two episodes.)

Here are some other articles and videos I enjoyed this week! I hope you will also.

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Published by Cleveland Appraisal Blog

My name is Jamie Owen. I grew up in Denver, Colorado and moved to Cleveland in 1996. I’m married to my wonderful wife of 22 years. We have two boys. We enjoy kayaking, travel and enjoying good food. I am a State Certified Residential Real Estate Appraiser in Northeast Ohio. I’ve been appraising since 1998. Real estate appraising can be a dry subject. My goal is to share what I know about appraising with others in a way that is fun and that brings a little smile to your face. I also enjoy learning from others and improving my own skills in the process. So don't hesitate to common on any of my articles. I welcome discussion. Thanks for being here! Have a great day!
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